Understanding RRSPs

RRSP Maturity Options

There are several maturity options available to allow you access to
your RRSP assets, each with specific advantages and disadvantages. You
can convert all or a portion of your RRSP assets to any of the following
options. This conversion can occur at any time, but you must convert all
RRSP assets by December 31st of the year in which you turn age 71.

Deregister your RRSP and receive a lump-sum cash payment.

Convert to a Registered Retirement Income Fund (RRIF).

Purchase an annuity.

The option(s) you should choose depends upon a number of criteria,
but your decision should be based on whether or not you want income
now or later, or if you want to maximize your estate for your heirs.
Some of the criteria to consider include:

Personal and family income needs

Estate objectives

Required income flexibility versus income guarantee

Desire to minimize income tax

Need to protect against inflation

The tax implications of your decision will vary depending upon the
option that you choose. A RRIF or annuity will continue to provide a
degree of tax deferral since income will be received over a number of
years. Lump-sum payments of cash will attract the most adverse tax
consequences and are usually inappropriate except when the RRSP is
relatively small.

At maturity, most individuals choose either a RRIF or an annuity.
The conversion from an RRSP to a RRIF or annuity occurs on a tax-deferred
basis. Also, if converting to a RRIF the investments held in your RRSP can
be transferred directly into the RRIF account. Investments in your RRSP
do not have to mature or be liquidated prior to transfer to the RRIF.

Convert to a RRIF

A RRIF is basically an extension of an RRSP except that it is intended
to provide an ongoing flow of income. Choosing this option will allow
you all the same flexibility provided by the RRSP, including allowable
investment types and access to funds. Unlike an RRSP, a RRIF does require
the receipt of at least a minimum annual payment. The RRIF option
provides the maximum amount of flexibility of the available maturity
options, allowing you control over the management of your assets,
flexibility of annual income and potential tax minimization.

Purchase an Annuity

An annuity is essentially a contract between an individual and an
insurance company to provide a guaranteed income stream for the individual's
life or for a fixed term. In purchasing an annuity you must decide
whether all or a portion of your RRSP will be used to purchase an annuity
as well as determine the type of annuity that should be purchased based
on your retirement and estate objectives. This decision can be complicated
since there are many options to choose from. The amount of annuity income
received will depend on the annuity option chosen and factors such as life
expectancy, current age, sex, health, amount invested and interest rates at
the time of purchase. By purchasing an annuity, you are locking in current
interest rates on the investment for the annuity's duration.

Various types of annuities can be purchased with RRSP funds, including
a: